The Reserve Bank must raise the official interest rate by 50 basis points

The Opportunities Party (TOP) calls for the Reserve Bank to raise the OCR 50 basis points to curb rampant inflation.

18 February, 2022 – In the face of the worst inflationary period of the last 30 years, the Reserve Bank needs to act boldly and increase the Official Cash Rate (OCR) 50 basis points when the Monetary Policy Committee meets on Wednesday, 23 February says Raf Manji, leader of TOP and former investment banker.

All signs point to the Reserve Bank raising the Official Cash Rate (OCR) another 25 basis points.

“What we’d like to see is the Reserve Bank raise the OCR twice that – 50 basis points – to 1.25 per cent,” Manji says.

“This is the time for the Reserve Bank to course-correct the economy after it pumped it full of cheap money in 2020. It was too slow to turn off the quantitative easing tap then, which means we need to increase interest rates rapidly now to seriously dampen inflation.

“The mortgage market has already priced interest rate rises into current mortgage rates. They are expecting the Reserve Banks to raise interest rates, but if the bank acts boldly, and goes further than market expectations, it will anchor those inflation expectations and send a signal to the market the bank is serious about curbing inflation. This could reduce the need for further rises in the future.

“We are going to have to raise the OCR to 1.25 per cent anyway so it’s better to do it quickly to dampen both household-related consumer spending and the housing market itself which is at unsustainable price levels.

“Rampant inflation is a real danger to average and low income earners, as it means their hard earned dollars can’t stretch to buy essentials – like bread, milk and petrol.

“The government could help offset this by raising the tax thresholds at the lower level and boosting incomes for those facing hard times. Improving incomes through a UBI and a higher tax free threshold is our key TOP policy, and together with our housing tax changes will lead to a fairer playing field for all.”